Opinion: Alternative funding arrangements for Defined Benefit pension funds
In addition to traditional cash funding, there are a range of options available to help trustees and sponsors meet the potential changes to TPR's Code of Practice.
Meeting the funding needs of Defined Benefit (DB) pension provision has always been a challenge for sponsoring employers and pension scheme trustees, as they seek to balance competing objectives. This will prove to become even more challenging once The Pensions Regulator (TPR) releases the new Code of Practice on DB funding (consultation due to commence during autumn 2019).
The new Code of Practice will focus on strengthening DB funding, increasing member security and reducing risks. Without further action, the new rules could see the deficit in a typical scheme rise by 50% and deficit contributions double, reflecting the intention for higher deficits to be removed over shorter periods.
In addition to cash funding, there are a range of options available in the market that sponsors and trustees can consider in pension scheme funding negotiations to support a recovery plan that meets objectives of all parties. Download our guide “Alternative funding arrangements for DB pension funds” (see below) for an overview of the options available and how they can help based on our practical experience. In particular, we illustrate how well each option can achieve the following:
- Deficit reduction – the level of immediate reduction in the pension scheme deficit
- Protection for members – the degree of improvement in protection of members’ benefits
- Extended time horizon – the extent to which they support cash funding being spread over a longer period
- Investment strategy flexibility – the extent to which they support the scheme’s investment strategy, seeking to achieve higher expected returns
If you would like to learn more about alternative funding options for your DB pension scheme and how to best implement them, please contact Isio’s Mike Smedley.